After the introduction of the VAT, malls have started a campaign to pay no VAT!!! Heavy discount!!! Get 5% off!!! But is that the case?

Contrary to the notion that VAT is not charged on goods sold at discount. Article 39 of the Decree-Law provides, VAT is to be charged on goods or services even when they are sold at discounted price.

Value of supply is to be reduced by the amount discount offered. Meaning, VAT will be charged at such reduced amount.

However, the value for charging VAT will be reduced only when:

  1. Benefit of price reduction is passed to the customer
  2. The supplier funded the reduction – meaning discount is a cost to the supplier

For example. Dubai mall announces a flat off of 5% on all products. Value of ZARA top earlier was AED 50 and after reduction is AED 47.5.

  • Here, the benefit is passed to the customer i.e. he is benefited by AED 2.5 because of off.
  • Further, ZARA is incurring a loss because of price reduction, amounting to AED 2.5.

So, the taxable value for charging VAT shall be AED 47.5 and VAT will be AED 2.37.

Analysing the impact on customer’s pocket

analysing the impact of VAT on sale discount

Impact of VAT on issue of discount vouchers

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The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn't constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn't accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information's provided herein above.

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